Look inside, not outside, to understand digital transformation

Tesla CEO Elon Musk shocked stakeholders when he tweeted that he was considering taking Tesla private. He explained that he believed this move could remove barriers on the company’s ability to innovate, and provide certain flexibility that would make it easier for Tesla to grow and expand its footprint.

Apparently, Musk’s belief that privatization was the only way to protect his company’s role as a leader in reenvisioning transportation waned a few weeks later when he was back in the news after sharing that these plans were no longer in place. Both of these announcements were material enough to resonate through the markets and impact Tesla stock.

The most interesting thing about this particular bit of news is the inferred assertion made by Musk that his company’s ability to maintain its performance was threatened by the oversight associated with being a publically traded entity. To those that work in the banking industry, this conclusion by Musk is an everyday reality from which we can’t escape. We feel Musk’s pain.

Take a look around

However, what if the oversight that comes with being a public company and the regulatory infrastructure in banking are not actually the reason why these entities are unable to keep pace with innovation? What if the actual barriers are related to something much more systemic within these organizations?

The real issue preventing a bank (or manufacturing company) from responding successfully to the conditions around them may actually have to do with the organization itself. For banks, the consumer’s expectation around digital fueled by the constant innovation of big tech companies has exposed the inability of many institutions to keep pace. To compete in the digital age, banks must broaden their view of what is keeping them from being able to respond in a timely manner with modern technology of their own. Digital should no longer be seen as an extra, but rather than an integral part of business.

Some institutions have taken steps to respond to this situation by modernizing the digital channels their customers use, but they have failed to extend their effort to include making the changes necessary to their internal processes, approach to budgeting and compensation structures. Unfortunately, others have not even considered it necessary to break free of disparate, legacy technology they have in place and improve what the consumer must go through to bank digitally with them. For the leadership of these banks, a quip shared with me by an industry consultant may best describe what could await them, “If you are a bank executive and you are not thinking about digital, you are not going to be a bank executive much longer.”

What now?

Bankers must make sure their pursuit of digital transformation is going to keep them and their institution in the game.

First, it’s critical for the management team and the board of directors to understand what is at risk and what must be done to address that risk. Bank executives should take the time to fully explain to the board why digital transformation is not a one-off project. For success to be possible, the board must completely buy into a well-defined strategic objective that will guide the institution’s digital future. Education and open communication are crucial to this task. The use of respected third parties can help amplify the message to better resonate with the board.

Second, focus on the long term. In a letter that Musk wrote to Tesla’s employees, he discussed how the short term viewpoint of equity investors put “enormous pressure on Tesla to make decision that may be right for a given quarter, but not necessarily right for the long-term.” All public entities, banks included, risk sacrificing the future to keep investors content in the present. Yet there are organizations that can positively work toward their longer term strategies while also satisfying present obligations. To achieve this, communication at all levels must incorporate the reasons why the longer term cannot be ignored.

Third, if you are a bank executive, time is not a friend. Digital transformation has been a force in society for nearly a decade. If a bank wants to facilitate the digital experience required to attract and retain consumers, leadership must act quickly and comprehensively. There can be no sacred cows when considering the digital strategy driving transformation. Everything about how a bank operates must be considered subject to alteration or elimination. It is quite possible that Musk could have better applied this practice at Tesla before announcing a strategy that proved distracting.

No one said it would be easy

Disruption is part of the landscape in most industries. Incumbent providers must be ready to leverage their advantages over incoming FinTechs. Leadership within banks must focus on more than just improving technology and licensing the latest “must have.” A bank should take a close internal look and strive to understand what is keeping it from reaching its digital goals. It isn’t easy, and if anyone says it is, do not buy whatever they are selling.